REITs Break Unsecured Notes Issuance Records

So far this year, REITs have issued $47.5 billion of unsecured notes - nearly a quarter more than they issued last year. And they might not be done for the year.

Driving much of the volume were continued low interest rates - the year's 119 issues carried a weighted average coupon of 3.88 percent - and the expectation that rates will increase. Of course, that included a number of three- and five-year deals, but 65 deals totaling $26.9 billion had terms of at least 10 years. That included eight issues totaling $2.38 billion with terms of 30 years.

Much of the issuance was done to address debt maturities that might have been a year out. So issuance next year could very well be anemic, at least when compared with this year.

Issuance reached a crescendo last week when, between Nov. 27 and 30, eight issuers priced $5 billion of bonds - a record for any three-day period.

Those issuers were led by Simon Property Group, which priced a total of $1.35 billion of bonds in two tranches with five and 10 years, and Realty Income Corp., which priced $1.3 billion of bonds in three tranches, one of which has a 30-year term. Simon's 10-year notes carried a coupon of 3.375 percent and priced to yield 3.469 percent, or 105 basis points more than Treasurys. Its five-year tranche, with a 2.75 percent coupon, priced to yield 2.786 percent, or 65 bps more than Treasurys.

Realty Income, which carries ratings a notch below Simon's A2/A- ratings from Moody's and S&P, saw its 10-year tranche, with a 3.65 percent coupon, price to yield 3.676 percent, or 130 bps more than Treasurys.

So far this year, a total of 118 companies have tapped the unsecured notes market. Those included some first-time issuers. Among those: MGM Growth Properties Inc., which owns resort properties and had its initial public offering of common shares in early 2016, and Broadstone Net Lease Inc., a Rochester, N.Y., owner of net-leased properties that is led by the former founders of Home Properties. While Broadstone's shares are publicly registered, they're sold privately to accredited investors.

Meanwhile, some REITs weren't necessarily motivated to issue by low interest rates. Some tapped the market as a result of acquisitions or mergers they were involved in. Digital Realty Trust Inc., for instance, floated $1.35 billion of bonds in August as part of its acquisition of Dupont Fabros in a deal valued at $7.8 billion. Proceeds of the notes were used to retire debt that Dupont had carried.

And Crown Castle International Corp., which owns cell towers, issued $2.6 billion of bonds, with $1.75 billion of that to finance its acquisition of LTS Group Holdings, which owns fiber cable, in a $7.1 billion deal.

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